Good Morning,

Last week had the potential of causing some market panic. This clearly was not the case and the ingredients which were touted as having the potential to dent market sentiment proved otherwise, which outcomes favoured market bulls. The next main hurdle for markets is the forthcoming Asset Quality Review results, due to be released in October, which could bring about some volatility in the run up to the event as the market frets and speculates about the results and possible outcomes. There is also the second tranche of the TLTRO, but that will not happen till December. None of these events are expected to be credit negative.

However, in a scenario whereby inflation remains stubbornly low (possible entering into a deflationary scenario) and meagre growth in the euro area (with talks of, who knows, perhaps another recession in the euro zone), investors should not be at fault for wondering whether the ECB has used up all its ammunition and no longer ‘has what it takes’, as the region’s overall economy has clearly not responded to the several bouts of stimulus being thrown at it from the ECB.

Evidently, the US and China are in a better shape and have come a long way, but this does not mean that either of the two will be in a position to help the eurozone out of the crisis, adding further impetus to the notion that the “Japanification” of the European markets could pretty well be round the corner. Only time will tell as markets continue to take cue from incoming economic data and developments surrounding the geo-political crisis, and the economic implications it is having (and could possibly continue to have as long as the sanctions remain in force and in place) on not only the effected regions but the possible infiltrations into the global economy.

The week ahead is a relatively quiet week on the data front, but there are a number of key business survey data, namely the HSBC flash PMI for China and the Markit flash composite PMI for the Euro area, with indications pointing towards minimal movement in either direction. The US flash manufacturing PMI is also expected to be unchanged, indicating that activity remains somewhat robust. But not yesterday we’ve had disappointing pending home sales in the US, dropping by 1.8% during August over the previous month. On a final note, US GDP Final data is expected to be released later on this week, with consensus expecting a upward revision to 4.6%.

Have a nice day!

Mark